NEW YORK Despite all of the stormy speculation surrounding the U.S. economy in general and the restaurant industry in particular, some silver linings are making their way through the clouds.
Consumers, the lifeblood of both the macro economy and the restaurant industry, are likely to begin seeking an escape from the mounds of negative data, including the record-low confidence ratings, sky-high unemployment figures, and declining stock market and home values, according to one restaurant analyst.
“At some point it seems battle fatigue sets in and, as a protective conditioned response, consumers look for an escape,” said Bob Derrington, a securities analyst at Morgan Keegan & Co. “They look for comfort. They seek out some refuge in the storm of daily living. Restaurant dining can provide that escape.”
Comparing restaurants with other consumer sectors, like auto manufacturers or retail chains, Derrington said in a Monday note to clients that restaurants will hold up better than most because the industry fulfils such basic needs as eating and socializing.
“The good news for the restaurant industry is that consumers typically get hungry about every four to five hours, generally three times a day, seven days a week, 365 days a year,” he said. “While consumers’ budgetary constraints have forced some to make do with less, it’s the systemic underlying demand that the restaurant industry serves which has and, we believe, will keep the industry’s chains active, [relatively] vibrant and ultimately profitable.”
Derrington conceded that the industry is not nearly as robust as it once was — even a year ago — but it is still performing at higher levels than other consumer sectors. The same-store sales declines at various restaurant chains could be worse, he said, as exemplified by sales declines of between 20 percent and 40 percent at retailers and by as much as 50 percent at auto manufacturers.
According to Nation’s Restaurant News same-store sales research, six of the 10 quick-service sector’s publicly traded companies reported positive same-store sales trends for their most recent periods, either the fourth quarter or latest monthly results. On Monday, McDonald’s posted better-than-expected February same-store sales results, including a 2.8-percent increase in the United States. The result would have been four percentage points higher, or an increase of 6.8 percent, when excluding the year-ago benefit from Leap Year.
In the casual-dining sector results are reversed, as just three of the 36 brands — Buffalo Wild Wings, Red Lobster and Olive Garden — have recently reported positive same-store sales trends. Fast-casual brands, pizza chains, coffee and snack brands, and family-dining restaurants also are struggling. Only Panera Bread has recently posted positive domestic same-store sales trends from within those categories.
From a straight revenue growth perspective, restaurants have held up better than retail chains, especially in recent months as the economic climate gets gloomier, said analyst Jeff Omohundro at Wachovia Capital Markets LLC.
Since 2006, retail sales growth has averaged 3.0 percent, compared with a 5.3 percent growth for restaurants, Omohundro’s research shows. More recently, retail sales have declined 0.4 percent since January 2008, compared with positive growth of 3.7 percent for the restaurant industry. Looking at a three-month average through January 2009, retail sales have fallen 10.8 percent, while restaurant sales have risen 2 percent, he said.
“We believe that over the longer term, the restaurant industry has seen a reduction in cyclicality, driven in part by an increase in dual-income families and a corresponding decrease in time available for families to cook at home,” Omohundro said in a research note. “In our view, this work-family dynamic has helped to create a growing demand for convenient meal solutions, which we think has helped to support an element of resiliency in restaurant industry sales.”
Contact Sarah E. Lockyer at [email protected].
